Full implementation timetable
In February the Government announced details of the full commencement timetable for the Companies Act 2006 and BERR (formerly DTI) has recently published a more detailed update. A substantial part of the Act comes into force on 1 October 2007, more on 6 April 2008, with the remainder going live on 1 October 2008. To date three commencement orders have been published introducing provisions in January, April and October 2007.
This briefing focuses on key provisions commencing on 1 October 2007 and their impact on your company. The provisions coming into force in 2008 are outlined too, but these will be covered in more detail in future briefings.
Directors’ new statutory duties and derivative claims
On 1 October 2007 the first statutory statement of directors’ duties becomes law (save for those provisions relating to conflicts of interest) along with the provisions introducing the new derivative action procedure that will facilitate claims by disgruntled shareholders against directors.
Boards should consider their new obligations both in terms of the day-to-day running of their company and also when taking decisions that may affect its future. Procedures for recording board deliberations and decisions ought to be reviewed and may require updating. It would be prudent to check any directors’ liability indemnity arrangements and the company’s D&O cover in light of the potential increased risk of litigation in relation to directors’ duties. As directors’ indemnities cannot cover the cost of dealing with derivative claims, clarification should be sought as to whether these costs are covered by insurance. The level of cover and availability of such insurance might impact on future ability to recruit directors.
Resolutions and meetings
From 1 October 2007 the new streamlined regime for passing shareholder resolutions and holding company meetings will be introduced.
Private companies will no longer need to hold AGMs (subject to their constitutional documents); notice periods for all shareholder meetings will be reduced to 14 days (unless constitutional documents require otherwise); revised proxy arrangements will be introduced; and it will be easier to pass written resolutions allowing decisions to be taken with greater speed and efficiency.
Public companies will still have to hold AGMs; notice periods for shareholder meetings, other than AGMs, will be reduced to 14 days (unless constitutional documents require otherwise); written resolutions will continue to be unavailable; revised proxy arrangements will apply; and quoted companies will be required to disclose results of polls at general meetings on their websites.
Enhanced business review
1 October 2007 sees the restatement of the current contents requirements for business reviews in directors’ reports which will apply to reports for financial years beginning on or after 1 October 2007. The new provision also imposes additional disclosure requirements on quoted companies to produce an enhanced business review.
The new provision says that the purpose of the business review is to inform members and help them assess how the directors have performed their new duty to promote the success of the company. As all companies (other than small ones) have to include a business review as part of their directors’ report, directors should consider whether any additional disclosures will be required in the light of this statement. Directors should remember that they have had personal liability for false and misleading statements in directors’ reports since 20 January 2007.
Indirect investor rights
There are new provisions in the Act permitting investors who own shares through nominees to exercise certain rights.
If a company’s articles permit, from 1 October 2007, trustee shareholders will be able to nominate another person (typically the beneficiary of the trust holding) to exercise some or all of their rights (other than in connection with share transfers) in relation to the company. These rights would include the right to be sent proposed written resolutions and notices of meetings and to vote. Both private and public companies will be able to adopt a suitable article if they choose, but they should be aware that doing so could give rise to cost and administrative burdens. Beneficiaries should also be mindful of the overall aims and purpose of the trust and be wary of exercising their rights if that could prejudice tax planning, for example.
From 1 October 2007, nominee shareholders in traded companies will have an automatic right to request that indirect investors, such as holders of PEPs and ISAs, may enjoy information rights (in relation to company communications and accounts), though companies are not required to act on a nomination before 1 January 2008.
Other provisions in force on 1 October 2007
Other provisions going live on 1 October 2007 relate to control of political donations and expenditure, the offence of fraudulent trading, protection of members against unfair prejudice and amendments to company investigations provisions.
Provisions coming into effect on 6 April 2008
Several significant provisions will come into force on 6 April 2008 including the removal of the requirement for private companies to appoint a company secretary (though they may still have one if they wish to or if their constitutional documents require it) and the provisions relating to accounts and reports, to audit and to statutory auditors.
Full implementation of the Act by 1 October 2008
The remainder of the Act’s provisions will come into force on 1 October 2008. These include the directors’ conflict of interest duties, provisions permitting confidentiality for all directors’ residential addresses and requirements relating to directors’ minimum age. They also include the provisions on incorporation of companies; new constitutional documents; share capital; and the lifting of the restriction on private companies from giving financial assistance in connection with the purchase of their shares.
Link to more briefings on the Act